Legal Round-Up: Crypto Ban in China

Adam Berker

The special, 9th issue of our legal round-up.

The special, 9th issue of our legal round-up.

On September 24th, The People’s Bank of China (PBoC) published a FAQ on the Notice on Further Preventing and Disposing of the Risks of Speculation in Virtual Currency Transactions.

Once again, the Chinese regulator underlined that all cryptocurrency transactions are illegal. In this piece, Mercuryo Legal Counsel Adam Berker takes a deep dive into the recent actions.

How it all started

On May, 18th The China Internet Finance Association has signed a joint statement with the China Banking Association and China Payment and Clearing Association, warning the public about the risks of investing in cryptocurrencies. 

The main points of the warning included the following principles:

  • Correctly understand the essential attributes of virtual currency and related business activities. The document states that cryptocurrencies are “not real currencies”; for that reason, they cannot be considered a legal tender.
  • Relevant institutions shall not conduct business related to virtual currency. Financial institutions, payment institutions and other member units should not use virtual money to price products and services or provide crypto-related services.
  • Consumers should improve their awareness of risk prevention and beware of loss of property and rights.

The warning underlines that internet platform corporate member units shall not provide online business premises, commercial displays, marketing promotion, paid diversion, etc., for virtual currency-related business activities. Also, the document states that cryptocurrencies are “not real currencies”; for that reason, they cannot be considered legal tender.

On June, 21st the People’s Bank of China (PBoC) interviewed some banks and payment institutions on the speculation of virtual currency transactions. As a result, PBoC pointed out that the speculation activities of virtual currency transactions impose a danger for the traditional economic and financial order, raise the risk of illegal cross-border transfer of assets, money laundering and other illegal and criminal activities, and seriously infringe on the property safety of the people. 

According to the PBoC’s statement, all banks and payment institutions must strictly implement the “Notice on Preventing Bitcoin Risks”, “Announcement on Preventing Token Issuance and Financing Risks”, and other regulatory regulations that effectively fulfil customers identification obligations. They shall not provide products or services such as account opening, registration, trading, clearing, and settlement for related activities. 

The recent PBoC’s publication

The most recent PBoC’s FAQ describes the background of the Notice, the status of cryptocurrencies and measures to combat the use of cryptocurrencies.

The announcement states that virtual currency-related businesses such as virtual currency exchange, buying and selling virtual currencies, token issuance and financing, and virtual currency derivatives trading are illegal financial activities. 

Furthermore, foreign virtual currency exchanges through the Internet are also considered illegal financial activity.

As for the combat measures, the regulators have improved the functions of the virtual currency monitoring technology platform to improve the accuracy and efficiency of identifying and discovering virtual currency transaction speculation activities. Moreover, the PBoC, the Central Internet Information Office, and the Ministry of Public Security have established coordination mechanisms to coordinate and promote the implementation of the crypto ban.

Summary

As we may see, China started taking measures on banning crypto long before September 24th. The latest announcement underlines the regulator’s approach and gives a more detailed explanation of applicable acts. Even though the Chinese ban was not news for the industry, it led to a fall in BTC prices by more than 5%. Still, this is not the first time when news from China has disrupted the market. According to the Cointelegraph’s research, since 2009, China has “banned” or otherwise caused FUD in the crypto space on more than 19 separate occasions.

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